WASHINGTON—President
Barack Obama
called for sweeping tax increases Monday in a budget proposal that dropped any quest for fiscal grand bargains with Congress, but also laid out narrower domestic priorities that may appeal to Republicans.

His proposal for more than $1 trillion in new tax measures over the coming decade was immediately declared a nonstarter by Republicans, who also criticized the plan’s lack of new measures to curtail entitlement spending, the biggest contributor to federal deficits.

At the same time, his request for a 4.5% increase in military spending—at a time when many Republicans are urging a boost for the military—and a corporate-tax revamp to pay for huge infrastructure spending were aimed at kicking off a serious conversation with GOP leaders.

Some Republicans have expressed interest in reaching economic deals with the president, and relatively few GOP lawmakers took aim at the White House proposal to blunt the impact of mandatory spending caps, known as the sequester, particularly on defense. Those caps were part of a bipartisan deficit-reduction deal in 2011.

But in other areas, his proposals have little chance of advancing. GOP leaders rejected a broad new tax on financial firms with more than $50 billion in assets and will oppose his pitch to spend billions more to combat climate change and to promote renewable energy technologies.

The budget called for $3.99 trillion in spending for the fiscal year beginning Oct. 1, a 6.4% increase from the current year. It also estimated that revenue would total $3.53 trillion, resulting in a $474 billion deficit, the lowest since 2008.

President Obama is making a bid for a 14% corporate tax hike on overseas earnings that will boost infrastructure spending. WSJ's Josh Zumbrun and Tanya Rivero discuss. Photo: AP

The budget cited an improving economy in calling for an end to what the White House termed “mindless austerity” measures and a pivot from a crisis-era focus on deficit-cutting to a period of economic reinvestment. With just two years left in office, Mr. Obama’s blueprint included a collection of tax measures and education initiatives meant to help middle-class families pay for childhood education and college tuition.

“We’ve got to put politics aside, pass a budget that funds our national security priorities at home and abroad and gives middle-class families the security they need to get ahead in the new economy,” Mr. Obama said.

GOP leaders struck a different chord. House Speaker
John Boehner
(R., Ohio) said the budget “contains no solutions to address the drivers of our debt, and no plan to fix our entire tax code to help foster growth and create jobs.”

The U.S. Chamber of Commerce called the budget proposal “more of a political document than an operational plan.” And the Business Roundtable said Mr. Obama’s plan to levy a one-time 14% tax on companies’ accumulated foreign earnings, along with a 19% minimum tax on overseas earnings, would harm the competitiveness of U.S. multinationals. But the group said it supported the goal of a long-term infrastructure spending bill and left the door open to supporting a tax-overhaul package that could pay for one.

That type of response highlighted the potential for compromises between the two sides—both on corporate taxes and on undoing the across-the-board spending caps both parties agreed to in 2011 that have squeezed military spending.

Some Republicans want to boost military funding by making deeper cuts to domestic spending. Mr. Obama countered by saying any increases for the military would need equal increases on the nondefense side.

White House advisers expressed optimism that a corporate-tax code overhaul could pay for infrastructure improvements.

“You have strategic alignment in some very important areas,” said
Jeffrey Zients,
the director of the White House National Economic Council. “We’re hopeful we can get some stuff done.”

Some observers, though, are skeptical that the White House can sell some its various trade-offs. “Infrastructure is a good idea, but I don’t see why it has to be tied to” a change in tax law, said
Glenn Hubbard,
a former top economic adviser to President
George W. Bush
who is now dean of Columbia Business School. Any taxes on accumulated foreign earnings, he added, should be used to pay for changes to the business-tax structure.

Several of the president’s proposals have already evoked a strong backlash on Capitol Hill. Last week, the administration dropped a plan to tax so-called 529 college savings accounts after Republicans said it amounted to a tax hike on the middle class.

The budget calls for $612 billion in overall military spending, which includes funds for the West’s confrontation with Russia over its incursion in Ukraine and the U.S.-led fight against Islamic State militants in Iraq and Syria. It also reserves $14 billion for cybersecurity measures. It seeks $1 billion in new funding to help Central American countries stem the flow of illegal immigrants to the U.S., and another $1 billion for research on new antivirus and other drugs.

Several budget deadlines, including the expiration of Homeland Security Department funding at month’s end, could test the parties’ potential for compromise.

Meanwhile, the White House pushed back against criticism that Mr. Obama had abandoned a commitment to long-term deficit reduction. Officials pointed to steps already taken to reduce health-care costs. They also said an overhaul of the immigration system, which faces long odds, could boost the number of workers paying taxes, holding down growing deficits.

Republicans have said they would propose a plan this spring to balance the federal budget over the next decade. Democrats have said that would require severe cuts to government programs catering to elderly and low-income Americans.

President Barack Obama submitted his budget proposal to a Republican-controlled Congress. What happens next? WSJ’s Jason Bellini has #TheShortAnswer.

Related

President Obama plans to use his budget to end the "sequestration" era of tight spending caps. Will Republicans play ball? WSJ’s Jerry Seib explains. Photo: AP

Rather than balance the budget, White House officials said they want keep deficits in check relative to the size of the economy to navigate a “demographic bubble” of retiring baby boomers over the next 20 years.

“If we can get through that period with debt stabilized and on a declining path…we put the nation in a much better position,” said
Shaun Donovan,
the president’s budget chief.

An improving economy has sharply reduced annual deficits from more than $1 trillion early in Mr. Obama’s first term, when the government boosted spending sharply during the financial crisis.

That has reduced the urgency for a deal to rein in spending on Social Security and Medicare, both of which are projected to boost deficits in the next decade as the baby boom generation retires.

But Monday’s budget offered a sober reminder that even a stronger economy can only do so much. The White House last summer cut its projections of the economy’s growth, boosting this year’s estimated deficit to $583 billion, up from $485 billion deficit in fiscal 2014.While the White House sees the deficit declining to $474 billion next year, deficits are projected to rise beginning in 2018. By 2025, interest payments on the national debt will account for 13.5% of government spending, up from around 6.5% today.